The collection of Federal Government incentives encouraging us to set aside money for retirement (private sector DC and DB plans, federal, state, and local pension plans, 403(b) and 457 plans, the Federal Thrift plan, individual and employer-sponsored IRAs and all non-IRA fixed and variable annuity reserves at life insurance companies) is the largest federal revenue loser according to those whose keep score.  As a result the National Commission on Fiscal Responsibility and Reform will undoubtedly consider this system in its deliberations about how to reduce the federal deficit.

Every day I am asked how the recent volatility of the stock market has affected the 401(k) plan participants. My answer is that most plan participants are in it for the long haul where dollar cost averaging smoothes volatility and that fluctuation in the marketplace is a normal part of equity investing. Thus, most participants’ long-term retirement prospects need not be adversely affected by market downturns.

Assets in defined contribution arrangements grew from $2.45 trillion in 1994 to $8.23 trillion by the end of 2009. Between their 401(k)s, 403(b)s, 457s profit sharing plans, ESOP’s and IRAs, which house the rollovers, American workers will eventually have more than $15 trillion to draw on during their retirement years. Contrast this to the $2 trillion in the Social Security Trust Fund. Due to these employer-sponsored programs never have so many had so much.

Retirement savings is the best federal tax expenditure because it is not tax expenditure. For fiscal years 2008 -- 2012, the Joint Committee on Taxation estimates that the Federal Government will forgo $626 billion in revenue as the result of contributions and accumulations in employer-provided retirement programs. However, unlike other tax-free benefits and tax credits, contributions and earnings in retirement plans are not tax-free.  They will be taxed at normal income tax rates at some point in the future. This means the long-term costs to the government of these plans is but a fraction of the estimate using the current approach.  It is important that we convince policymakers of the difference between tax deferred expenditures and tax-free exclusions.

The House and Senate have passed different versions of HR 4173 that creates a new regulatory framework for the financial services industry.  The two chambers are currently attempting to meld their differences into a unified “conference report” that will be approved in each chamber and sent to President Obama for his signature.  They hope to complete their work by the end of June.

Common sense tells us that those willing to make short term sacrifices for long term benefits make better employees than those who live for the moment.  They are more likely to recognize that their hard work and initiative improves their opportunities for promotion, increases company profitability (and their annual profit sharing bonus), and helps insulate them if a company downsizes.  Those who live for the moment are more likely to quit unexpectedly, take frequent days off, treat company equipment carelessly and do the minimum necessary to keep their jobs.

In places far far away discussions focus on how not every 401(k) account is invested as “they” would invest it, how not every 401(k) participant saves what “they” define as enough, and how the 401(k) system does not deliver for every American an amount “they” define as adequate. These faraway places where “they” are, are nothing like the America where most of us work and live.

Many dissatisfied with the private employer defined contribution system are destined to be permanently frustrated.  That's because addressing their concerns requires changing the system fundamentally.  One concern expressed by critics is that plan assets are not managed lockstep across the system using someone's idea of best practice.  For example, many believe that there is a best practices approach to target date fund design that the government should mandate for every employer-sponsored defined contribution program.  They are unhappy at the wide variety of approaches.  They are unhappy with the process that permits such variation. They are especially unhappy with approaches that are not theirs.

Everyone agrees: financial literacy matters. Everyone agrees: the financial skills of those entering the workforce are limited.  Over the last 20 years Employers, because of their commitment to their employees and to their defined contribution programs, have responded by directing a massive adult education effort explaining the benefits of long-term saving and the nuts and bolts of investing. Seminars/workshops, Webinars, CDs, e-mail, modeling software, books, newsletters and printed pieces are all being used to help America's workers understand the importance of being long-term savers and the principles of successful long-term investing.  And, the intensity and sophistication of this effort continues to increase as 401(k) service providers taking advantage of some of the most creative minds in the investment community have stepped up their delivery of financial education to America's 401(k) participants. Every day all over America workers are attending workshops and seminars.  Every day all over America workers are receiving electronic and printed communications explaining the basic principles necessary for long-term financial success.

The ink is barely dry on the massive health care reform legislation.  Employers are busy evaluating how their health plans will be impacted.  While health care is not a core PSCA issue, here are some very preliminary observations on how retirement plans might be impacted: